Canadian National Railway Company (CNI) will sell assets of its indirect subsidiary IC RailMarine Terminal Company to Raven Energy, LLC, which is affiliated to Foresight Energy, LCC, a leading private company engaged in coal mining and a division of Cline Group.
Total proceeds from the divestiture are estimated at $73 million.
Canadian National expects the deal to be completed within 45 days, subject to regulatory approvals. Upon completion, the company will strike a 10-year rail transportation agreement with Savatran LLC for coal transfer from Foresight's four mines in Illinois to Convent's coal transfer facility. Savatran is a privately held company engaged in railroad car leasing and is also affiliated to Foresight.
The new 10-year coal contract will involve a minimum amount of annual coal shipment by Savatran through Canadian National’s network. Furthermore, the agreement will expedite Foresight’s expansion plans to export eight million tons of coal from the current four million tons, subject to market conditions.
Given the increased demand for metallurgical coal in the export market, particularly in the Asian market, we believe Canadian National is well positioned to benefit from the new coal agreement. Currently, Foresight accounts for approximately 20% of the total coal production in Illinois and has invested approximately $1 billion in most productive underground thermal mine across the U.S.
Given its increasing coal mining activity in Illinois, we believe the new business opportunities for coal transportation will not only provide efficient utilization of southern rail corridor by Canadian National but also expand market opportunity of Illinois Basin coal. Furthermore, the agreement will provide Canadian National an edge over other railroads like Canadian Pacific Railway Limited (CP), which operates in an almost similar network.
We are currently maintaining our long-term Neutral rating on Canadian National. For the short term, the company retains a Zacks #3 (Hold) Rank.
CDN NATL RY CO (CNI): Free Stock Analysis Report
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